Question

Milo Company manufactures beach umbrellas. The company is preparing detailed budgets for the third quarter and has assembled the following information to assist in the budget preparation:

The Marketing Department has estimated sales as follows for the remainder of the year (in units):

The selling price of the beach umbrellas is $12 per unit.

July		40,500		October		30,500
August		91,000		November		17,000
September		60,000		December		17,500

All sales are on account. Based on past experience, sales are collected in the following pattern:

30	%	in the month of sale
65	%	in the month following sale
5	%	uncollectible

Sales for June totaled $480,000.

The company maintains finished goods inventories equal to 15% of the following month’s sales. This requirement will be met at the end of June.

Each beach umbrella requires 4 feet of Gilden, a material that is sometimes hard to acquire. Therefore, the company requires that the ending inventory of Gilden be equal to 50% of the following month’s production needs. The inventory of Gilden on hand at the beginning and end of the quarter will be:

June 30	96,150	feet
September 30	?	feet

Gilden costs $0.60 per foot. One-half of a month’s purchases of Gilden is paid for in the month of purchase; the remainder is paid for in the following month. The accounts payable on July 1 for purchases of Gilden during June will be $52,890.

2. Prepare a production budget for each of the months July–October.

Production Budget
	July	August	September	Quarter
Budgeted Unit Sales
Total Needs
Required production in units

Answer 1

• All working forms part of the answer
• Requirement 2

Production Budget
	July	August	September	Quarter
Budgeted Unit Sales	40,500	91,000	60,000	191,500
Add: Desired ending Inventory of finished goods	13,650	9,000	4,575	4,575
Total Needs	54,150	100,000	64,575	196,075
Less: Beginning Inventory of finished goods	6,075	13,650	9,000	6,075
Required production in units	48,075	86,350	55,575	190,000

• Working for above

Production Budget
	July	August	September	Quarter
Budgeted Unit Sales	40500	91000	60000	=40500+91000+60000
Add: Desired ending Inventory of finished goods	=91000 x 15%	=60000 x 15%	=30500 x 15%	=30500 x 15%
Total Needs	=40500+13650	=91000+9000	=60000+4575	=191500+4575
Less: Beginning Inventory of finished goods	=40500 x 15%	13650	9000	6075
Required production in units	=54150-6075	=100000-13650	=64575-9000	=196075-6075